Applying for tax credits is a great way to save tax money, take on a business improvement project, and support your community or environment. If you own a business in Iowa, there are plenty of state tax credits to take advantage of.
Keep reading for a list of tax incentives for Iowa businesses.
Tax incentives for small businesses in Iowa
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Farm to Food Donation Tax Credit
If you’re a farmer in Iowa, you might qualify for the Farm to Food Donation Tax Credit, which encourages farmers to donate self-produced food commodities to food banks and food pantries. If you donate, you can get a corporate income tax credit of $5,000 or 15% of the value of the commodities you donated (whichever amount is smaller).
To qualify for the credit, you need to:
- Make sure the organization you donate to is registered with the Iowa Department of Revenue as an authorized distributor of Farm to Food Tax Credit Donation receipts, and
- receive an authorized food organization receipt when you make your donation.
For details on how to claim the credit:
Solar Energy System Tax Credit (no longer available)
Iowa’s Solar Energy System Tax Credit program isn’t currently available. However, if your business started—and finished—installing a renewable energy system sometime in the last eight years, you might qualify for the tax credit.
If you began a solar installation project on January 1, 2022, or later, you’re not eligible for the credit. If you began the project sometime between 2016 and 2021, you can qualify for a credit anywhere from 5 to 15%, depending on what year you completed the installation. Your installation needs to meet the federal energy-efficient property credit requirements to qualify.
For more information on how to claim the credit,
Installing a solar system is just one way to build a more environmentally sustainable business—learn six other strategies here.
Iowa New Jobs Tax Credit
The New Jobs Tax Credit—a one-time corporate income tax credit available to Iowa businesses that participate in the New Jobs Training Program (260E)—rewards businesses for expanding their workforce and giving employees additional training and resources.
To qualify, you have to enter into a New Jobs Training Program agreement and commit to expanding your employment by 10% or more. In 2024, the maximum tax credit is $2,292 per new employee hired.
Targeted Jobs Withholding Tax Credit
The Targeted Jobs Withholding Tax Credit is a pilot program that lets participating businesses divert employee withholding costs to qualified growth projects. If you qualify for the program, up to 3% of the gross wages you pay your employees can go toward a project budget on a quarterly basis—and that amount will be matched by a designated pilot city.
To qualify, you have to meet the following criteria:
- Be located in Burlington, Council Bluffs, Fort Madison, Keokuk or Sioux City
- Be relocating to Iowa from another state and creating jobs at or above the hourly wage threshold for the city, OR
- Be an existing Iowa business creating or retaining 10 new jobs at or above the hourly wage threshold for the city, OR
- Be an existing Iowa business making a qualifying investment of $500,000 within a pilot city
To view the hourly wage thresholds and learn how to apply,
Renewable Chemicals Production Tax Credit
The Renewable Chemical Production Tax Credit incentivizes eligible businesses to produce high-value chemicals from biomass feedstocks. The credit is equal to $0.05 per pound of renewable chemicals produced from biomass feedstock in Iowa, with a maximum amount of $500,000 for established businesses and $1 million for startups.
The credit is available for renewable chemicals produced on or after January 1, 2017, and on or before December 31, 2036.
To qualify for the credit, your business needs to apply to the Iowa Economic Development Authority (IEDA), be located physically in Iowa, not offer any professional services, and be committed to not relocating or reducing operations.
Renewable Energy Tax Credit
The Renewable Energy Tax Credit—available through 2027—rewards businesses for producing or purchasing energy from an eligible renewable energy facility approved by the Iowa Utilities Board. The renewable energy facility must be located in Iowa and placed in service between July 1, 2005 and January 18, 2018.
The tax credits are equal to one of the following:
- $0.015 per kilowatt-hour of electricity
- $4.50 per million British thermal units of heat for a commercial purpose
- $4.50 per million British thermal units of methane gas or other biogas used to generate electricity
- $1.44 per one thousand standard cubic feet of hydrogen fuel generated by and purchased from an eligible renewable energy facility
Iowa Research Activities Tax Credit
Similar to the federal research and development tax credit, the Iowa Research Activities Tax Credit incentivizes businesses to invest in qualified research and development activities to improve their business and accelerate growth in their industry.
The credit amount is based on your annual gross receipts, but it’s generally no less than 50% of the cost of your eligible R&D activities.
To qualify for the credit, you need to meet the following criteria:
- Claim and be approved for a federal research credit
- Be in one of the following industries: manufacturing, life sciences, software engineering, or aviation and aerospace
- Not be any of the following: engaged in agricultural production; engaged in commercial or residential installation and repair work; or an accountant, architect, collection agency, finance or investment company, publishing company, real estate company, retailer, transportation company, or wholesaler
Check out these helpful federal tax incentive programs.
High-Quality Jobs Program Tax Credit
Iowa’s High-Quality Jobs Program gives eligible businesses financial help to invest in improving their business facility and creating or retaining high-quality jobs for Iowa residents. Under the program, certain businesses can qualify for the investment tax credit.
To qualify for the program, you need to meet these wage requirements:
- Created jobs must pay at least 100% of the qualifying wage threshold at the start and 120% of the qualifying wage threshold by project completion and through the maintenance period unless in a distressed area
- Retained jobs must pay at least 120% of the qualifying wage threshold by project completion and through the maintenance period
You also need to provide a benefits package to all full-time employees that includes at least one of the following:
- 70% of medical premiums for single coverage plans with qualifying deductible covered by employer
- 60% of medical premiums for family coverage plans with qualifying deductible covered by employer
- Some level of medical and dental coverage covered by employer, along with the monetary equivalent value through other employee benefits
If you get approved for the program, you can take an investment tax credit equal to a percentage of your qualifying investment, amortized over five years.
Gasoline tax credits
Iowa currently issues three different refundable income tax credits for retailers who sell specific types of gasoline. The credits include:
- Biodiesel Blended Fuel Tax Credit: Available through 2027 for retailers who sell biodiesel blended fuel. The tax credit equals $0.05 per gallon for blends between B11 and B19, $0.07 per gallon for blends between B20 and B29, and $.10 for blends of B30 or higher.
- E15 Plus Gasoline Promotion Tax Credit: Available through 2025 for retailers who sell blended gasoline classified as E15 or higher (excluding E85). Beginning in 2023, the tax credit is $0.09 per gallon for the full calendar year.
- The E85 Gasoline Promotion Tax Credit: Available through 2027 to retailers who sell E85 gasoline. The credit is $0.16 per gallon.
Innovation Fund Tax Credit
Through the Innovation Fund Tax Credit, investors can get a tax credit equal to 25% of their investment in a qualifying Iowa-based innovative business. Innovative businesses include companies in advanced manufacturing, biosciences, and information technology, among other fields.
To apply, you need to submit an application by March 31 of the calendar year preceding the year you made the investment.
Assistive Device Tax Credit
The Assistive Device Tax Credit is a corporate income tax available to small businesses that invest in making their workplaces more accommodating for employees with disabilities. To qualify for the credit, you need to:
- Be located in Iowa
- Employ no more than 14 full-time employees or have gross receipts of no more than $3 million during your preceding tax year
- Purchase, rent, or modify an assistive device, or make workplace modifications for an individual with a disability who is employed or will be employed by your business
The credit is 50% of the first $5,000 paid for the assistive device or workplace modification.
S Corporation Apportionment Tax Credit
The S Corporation Apportionment Tax Credit is available to individual resident shareholders of S corporations that do business both within and outside Iowa. With this tax credit, S corp owners and shareholders can divide their income the way C corporations do.
Historic Preservation Tax Credit Program
The Historic Preservation Tax Credit Program is available to Iowa developers who rehabilitate historic buildings. If you qualify for the credit, you can get a state income tax credit of up to 25% of the qualified rehabilitation expenditures associated with the project.
To qualify, you need to meet the following criteria:
- Preserve a building that fits into one of the following: is listed on the National Register of Historic Places or determined by the staff at the State Historic Preservation Office (SHPO) to be eligible for listing; contributes to the significance of a historic district that is listed on or eligible to be listed on the National Register of Historic Places; is designated as a local landmark by city or county ordinance; is a barn constructed before 1937 OR a barn listed on or eligible for listing on the National Register of Historic Places
- Undertake a substantial rehabilitation, meaning your project meets at least one of these criteria: If the building is a commercial building, qualified rehabilitation expenditures must equal at least 50% value of the building (excluding land) before rehabilitation or $50,000, whichever is less; If building is a non-commercial building, qualified rehabilitation expenditure must equal at least 25% of the assessed value of the building (excluding land) before rehabilitation or $25,000, whichever is less.
- Have your rehabilitation project meet the federal Secretary of the Interior’s Standards for Rehabilitation.
- Be considered an eligible taxpayer as the owner of the property or someone having a long-term lease
The next applications are due September 16, 2024.
Redevelopment Tax Credit
The Redevelopment Tax Credit is available to Iowa developing businesses that redevelop brownfield and grayfield sites.
Brownfield sites are abandoned or underused industrial or commercial properties struggling with environmental contamination. Grayfield sites are abandoned public buildings and industrial or commercial properties that are vacant or underutilized.
If you qualify, you can get:
- Tax credits of up to 24% for qualifying costs of a brownfield project and 30% if the project meets green building requirements
- Tax credits of up to 12% of qualifying costs of a grayfield project and 15% if the project meets green building requirements
The maximum award per project is $1.5 million.
Iowa city and county tax credits
Some Iowa cities and counties have their own local tax credits for businesses. To check whether your city or county has tax credits that apply to you,
Sales and use tax exemptions
Iowa offers a myriad of sales and use tax exemptions for businesses that meet specific criteria. Here are just some of the exemptions you can qualify for:
- No sales and use tax on industrial machinery and equipment purchases
- No sales tax on purchases of electricity or natural gas used during the manufacturing process
- No property tax on industrial machinery and equipment
Some Iowa cities and counties have their own local tax credits for businesses. To check whether your city or county has tax credits that apply to you, check here.
Iowa financing resources for businesses
In addition to tax incentives for businesses in Iowa, Iowa also offers a variety of financing programs for businesses. Check out Gusto’s complete guide to Iowa grants and loans.
Need other Iowa business resources?
- Get step-by-step instructions for starting and running a business in Iowa.
- Brush up on Iowa small business taxes.
- Review Iowa registration and tax information.
